The Finance Minister, in the budget presentation, proposed to make an amendment in Section 28 of the income tax act, 1961. The proposal required the residential house rentals to be reported as the House property and not the profits and Gains from Business and Profession.
When it comes to taxation on rental income, it’s essential to understand the distinction between residential and commercial properties. The Income Tax legislation mandates that rental income from a residential house or part thereof must be taxed under House Property Income. This means that individuals who lend out their residential properties for rental purposes must report this income under the House Property Income head.
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On the other hand, rental income from commercial properties used for business purposes is taxed differently. Such income is not subject to the same mandatory taxation under House Property Income. Instead, it is taxed under the Profits and Gains of Business or Profession (PGBP) head.
The Finance bill stated that “In section 28 of the Income-tax Act, after Explanation 2, the following Explanation shall be inserted with effect from the 1st day of April, 2025, namely:—
‘Explanation 3.—It is hereby clarified that any income from letting out of a residential house or a part of the house by the owner shall not chargeable under the head “Profits and gains of business or profession” and shall be chargeable under the head “Income from house property”.Read More: Budget 2024-25: FM Proposes to Amend S.271H of Income Tax Act w.r.t Penalty on Late Returns Filing
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